Are you planning on traveling for business this summer? If so, it’s important to be aware of the deductions you can claim for your business travel expenses. According to tax law, there are certain requirements that must be met in order to claim these deductions for out-of-town business travel within the United States. These rules apply if an overnight stay is necessary due to the nature of the business conducted.
It’s worth noting that under the Tax Cuts and Jobs Act, unreimbursed travel expenses cannot be deducted on individual tax returns by employees until 2025. This is because such expenses fall under “miscellaneous itemized deductions,” which are no longer deductible.
Self-employed individuals are eligible to deduct their business expenses, even the expenses incurred during travel away from home.
Transportation and meals
When you go on business trips out of town, you can deduct the actual costs of travel such as plane fare and cab rides to the airport. You’re also allowed to deduct the cost of meals and lodging, even if they are not directly related to any business activity.
However, there are some limitations you need to be aware of. In 2021 and 2022, there was a temporary 100% deduction for business food and beverages provided by a restaurant, but it was not extended to 2023. Therefore, this year, the limit for deducting eligible business meals is 50%.
It’s important to note that you cannot deduct meal or lodging expenses that are considered lavish or extravagant. However, you can write off business-related expenses such as dry cleaning, phone calls, and computer rentals. Personal entertainment costs are not deductible.
Combining business and pleasure
If you plan to combine business with pleasure on a trip, you may need to make some adjustments. For instance, if you fly to a location for four days of business meetings and stay on for an extra three days of vacation, you can only deduct the costs of meals and lodging incurred during the business days.
However, if the trip is primarily for business purposes, the entire travel cost can be deducted without any allocation needed. Conversely, if the trip is mainly for personal reasons, none of the travel costs are deductible. The time spent on each activity is an essential factor in determining whether the trip is for business or personal purposes.
If the trip is not for business conduct but for attending a convention or seminar, the IRS may scrutinize the nature of the meetings to ensure it is not a disguised vacation. Keep all relevant documents that can prove the business or professional nature of your travel.
READ MORE: Meal, Travel and Entertainment Expenses: Know what’s Deductible
Other business travel expenses
When it comes to deducting the costs of a spouse who joins you on a business trip, the rules can be quite limiting. Unless your spouse is an employee of your company and their travel is also for a business purpose, no deduction is allowed. Additionally, it’s important to note that personal expenses incurred at home as a result of the trip are not deductible. This includes costs such as boarding a pet while you’re away. If you have any questions about deductions for your small business, don’t hesitate to reach out to us.
READ MORE: 18 Tax Deductions for Small Businesses
© 2021. Updated June 2023.